Tuesday, December 21, 2021

Paraguay raises rate 5th time, growth outlook raised

     Paraguay's central bank raised its monetary policy rate for the fifth month in a row, saying the second-round effects of external shocks on inflation may become relevant and affect medium-term inflation expectations in light of the improved economic activity and a monetary policy stance that remains accommodative.
     The Central Bank of Paraguay  (BCP) raised its policy rate by another 1.25 percentage points to 5.25 percent and has now raised it 4.5 points this year following rate hikes from August through today.
     The policy rate is now back to its level between August 2017 until February 2019, when the central bank embarked on an easing cycle that continued until June 2020 when BCP paused after the rate was cut to 0.75 percent after 10 rate cuts, including three in the month of March last year.
     BCP said contagion of COVID-19 on a regional level remains moderate and domestic economic activity has been favorable in recent months, prompting it to raise its projection for economic growth this year.
      Last month the bank's governor, Jose Cantero, said Paraguay's gross domestic product this year could top the bank's forecast of 4.5 percent and BCP now projects growth this year of 5.0 percent.
      In the second quarter Paraguay's GDP grew 6.9 percent year-on-year, up from 0.5 percent in the first quarter.
      For 2022 BCP forecasts economic growth of 3.7 percent, with the pandemic and the climate representing the main risks to economic activity in coming months.
      High commodity prices and external demand for beef has pushed up food and fuel prices in Paraguay, leading to a steady acceleration in inflation since May, and the central bank estimates inflation of 7.1 percent this year, in excess of its target of 4.0 percent, plus/minus 2 percentage points.
       In November Paraguay's inflation rate eased to 7.4 percent from 7.6 percent in October due to a moderation in the cost of food and fuel and BCP expects inflation to ease in the medium term, given the normalization of monetary policy underway by monetary authorities worldwide.



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